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9706 · 1.4.1

Reconciliation and verification — practice questions

Practice and worked examples for 9706 Reconciliation and verification. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

Purchase of office equipment $4,000 debited to purchases account. Name error type and effect on profit and fixed assets.

Show solution outline

Error of principle — wrong category (expense vs asset).

Effect on profit: Overstated expenses → profit understated by $4,000 (no depreciation yet).

Effect on SOFP: Non-current assets understated $4,000; no effect on TB balance.

Correction: DR Office equipment $4,000, CR Purchases $4,000 — then depreciate and adjust profit.

Worked example 2

On 31 March, a business's cash book showed a bank balance of $3,450. The bank statement received on the same day showed a balance of $4,075. The following discrepancies were found:

  1. Cheques issued but not yet presented to the bank totalled 1,280.1,280.
  2. A direct debit for insurance of $350 appeared on the bank statement but was not in the cash book.
  3. Bank charges of $45 were shown on the bank statement only.
  4. A customer paid $600 directly into the bank (credit transfer), but this was not yet recorded in the cash book.
  5. Lodgements (deposits) made on 31 March of $860 were not yet credited on the bank statement.

Prepare the updated cash book and a bank reconciliation statement as at 31 March.

Show solution outline

Step 1: Update the Cash Book

First, we adjust the cash book for items on the bank statement that the business hasn't recorded yet. This involves making entries for the direct debit, bank charges, and the credit transfer.

| | ∣ | | :--- | ---: | | Balance as per cash book (b/d) | 3,450 | | Add: Credit transfer from customer | 600 | | | 4,050 | | Less: | | | Direct debit (insurance) | (350) | | Bank charges | (45) | | Adjusted cash book balance (c/d) | 3,655 |

Step 2: Prepare the Bank Reconciliation Statement as at 31 March

Now, we start with the bank statement balance and adjust for timing differences (items we have recorded but the bank has not yet processed).

| | ∣ | | :--- | ---: | | Balance as per bank statement | 4,075 | | Add: Outstanding lodgements (deposits in transit) | 860 | | | 4,935 | | Less: Unpresented cheques | (1,280) | | Balance as per adjusted cash book | 3,655 |

The final figure matches the adjusted cash book balance, so the bank account is now reconciled.

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